Pensions

Retirement Planning

Do you fancy the idea of living on a little over £164 per week when you retire?*

That’s pretty much the prospect unless you make additional pension arrangements either by setting up a personal pension or by being part of a company scheme.

Before seeking advice on pension provision it’s worth getting the basics straight first.

Why do I need a pension?

When you retire you still need food and shelter as an absolute minimum, but of course you will want to maintain the lifestyle to which you have become accustomed, so unless you can guarantee a large inheritance or windfall, then you need to provide yourself with a secure income for the rest of your life.

A well prepared pension plan which is regularly reviewed should go some way to providing you with a reasonable level of income in your retirement.

A pension plan requires action as soon as possible, so start now – and if you have already started, take the opportunity to have a closer look at your existing arrangements to make sure you are on track.

How much am I going to need for my retirement?

The answer to this, of course, depends on your aspirations – what will you want to do? What will be the costs of day-to-day living for you (and your partner) in retirement? What else will you want to do now you have time on your hands? What expenses will disappear e.g. children, mortgage repayments etc?

Once you come up with a figure, add in an amount as a buffer against the unforeseen and unexpected. Now you will have arrived at the amount of pension that you should ideally be planning for. Also, bear in mind that pensions are taxable, so you will need to allow for payment of Income Tax when arriving at your final pension figure.

I already have a pension so I’ll be fine, won’t I?

It is very important that you review the benefits of your scheme and the status of your personal plan, to establish if it is on track to give you the pension you want.

If you are in an employer’s scheme you should be able to obtain a statement from your employer outlining the scheme benefits. Alternatively, contact us and we can analyse your current provisions and make any recommendations with the aim of achieving your goals.

For a personal pension, the level of contributions you have been making to your scheme, investment performance and charges will determine the size of your pension, however, as the years go by, your fund should increase and could eventually get to a size where the investment returns come into play. The larger your fund, the more advice you may need on managing the fund for optimum performance, because every percentage point increase or decrease could potentially represent thousands of pounds.

We will be pleased to regularly assess your benefits to establish whether they still have the potential to meet your objectives, and make appropriate recommendations to you.

What type of pension should I have?

There is no simple answer as this depends on your employment status e.g. self-employed, employed or director, and the benefits that are available through your employer’s scheme, if there is one.

* Based on the current single person State Pension of 2018 / 2019

A PENSION IS A LONG TERM INVESTMENT, THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM TAXATION, ARE SUBJECT TO CHANGE.

Occupational Pensions / Auto Enrolment

Occupational Pensions

How occupational pension schemes work

The employee doesn’t have to do anything to enrol — the employer makes all the arrangements. Every payday, a percentage of the employee’s pay is deducted automatically from their salary or wages and invested in the scheme. The employer also contributes to the scheme on the employee’s behalf as does the government in the form of tax relief.

Two types of scheme

In a ‘defined contribution scheme’, the employee’s retirement income is based on the contributions made, whereas in a defined benefit scheme, the employee’s pension income is based on his or her salary and length of service with the employer. Most occupational pension schemes are defined contribution schemes.

What happens if the employer goes out of business?

Most defined contribution schemes are managed by insurance companies not the employer, so employees’ pension pots should not be affected. If the scheme is a trust-based scheme, employees will still get their pensions, although not as much because the scheme’s running costs will be paid out of members’ pension pots rather than by the employer.

Auto Enrolment

Under a new law called ‘Automatic enrolment’, any employer (with at least one member of staff) must automatically enrol every employee between the age of 22 and State Pension age and earning in excess of £10,000 a year into a company-managed occupational pension scheme.  Auto enrolment is applicable with qualifying pension schemes including non-occupational type defined contribution group personal pensions.

Automatic enrolment is being introduced gradually, via ‘staging’ dates, although all eligible employees should be enrolled in a workplace scheme by October 2018, at the latest.

Contribution costs

The minimum contribution for employers is 1% of the employee’s earnings, increased to 3% from 06/04/2018. Employees are obliged to contribute at least 1% of their earnings before tax, rising to 5% from 06/04/2019.

OCCUPATIONAL PENSION SCHEMES ARE REGULATED BY THE PENSIONS REGULATOR

A DEFINED CONTRIBUTION PENSION IS A LONG TERM INVESTMENT, THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.

THE PENSIONS REGULATOR IS THE STATUTORY REGULATOR FOR WORKPLACE PENSIONS.

AUTO ENROLMENT AND OCCUPATIONAL PENSION SCHEMES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM TAXATION, ARE SUBJECT TO CHANGE.

Annuities

(From April 2015, the rules involving annuities and income drawdown changed. Rather than having to purchase an annuity, pension savers can, if they wish, withdraw as much as they wish from their pension pots. In total, 25% of the pension pot can be taken free of tax; the balance being subject to income tax. Although this change may make annuities less attractive for some, many still prefer the security of knowing they have a guaranteed and secure income for life.)

What is an annuity?

An annuity is a contract between an insurance company and a pension scheme member, where the member uses some or all of their pension savings to purchase a regular and guaranteed income for the rest of his or her life or for a predetermined number of years.

The factors that determine the amount of income you can expect to receive include (but are not limited to) your age, state of health, your postcode, prevailing annuity rates, the type of annuity you buy and the size of your pension fund.

What are the advantages of an annuity?

  • A regular and secure income for life
  • Can be tailored to meet specific individual needs and circumstances

What are the disadvantages?

  • Falling annuity rates would reduce the level of income that you could obtain in exchange for your pension fund at the time when you come to retire
  • Payments cease on death (unless you purchase an annuity which continues to pay income after you have passed away)

Depending on your circumstances and requirements, some annuities may be more suitable for you than others. We are here to assist and to ensure that you purchase the annuity that best suits your needs and circumstances.

 

Important note

If you do decide to buy an annuity upon retirement, you should ensure that you check policies, rates, restrictions, and benefits very carefully, and if necessary seek advice from a financial adviser. Investing in the wrong annuity scheme could cost you a great deal in annual income, so make sure that you look into this subject carefully before you make any commitment.

Income Drawdown

(Please note – Income Drawdown is a complex and constantly changing subject and the information provided here reflects the current situation. For more information call us today or complete our short enquiry form and we’ll be pleased to help you further.)

Traditionally, when the time came to retire, most people with defined contribution (DC) pensions (usually where the same amount is paid in each month), either used their whole pension fund to buy an annuity or used the remainder to do so after taking their entitlement to tax free cash (normally 25% of the fund). They did so because they either didn’t qualify for income drawdown, were too cautious to accept the associated investment risk or were reluctant to pay the tax bill they would incur if they withdrew the whole pension pot in one go.

Since income drawdown was introduced some years ago, anyone of retirement age with a DC pension has been able to take income directly from their pension fund without needing to buy an annuity. Now, with the introduction of new ‘income drawdown’ rules, anyone with a DC pension and age 55 or over, can use income drawdown to provide the income they need in retirement. Pension savers who are currently in a capped drawdown can move out of that arrangement whenever they choose.

How Income drawdown works

Rather than exchanging your pension savings for an annuity (a fixed and regular income for life paid by the pension provider) the pension fund is left invested and you draw income directly from the fund. As the bulk of your pension remains invested the fund is still able to benefit from any growth (or not!) in the value of its investments. There’s no limit to the amount of income you can withdraw — you can draw as much (or as little) as you like, even the entire fund if you want.

And unlike an annuity, in a drawdown arrangement the pension saver keeps their pension pot.

Tax implications

Although you can withdraw up to 25% of your pension fund tax-free, anything else you withdraw from your pension pot will be treated as income and as such subject to the marginal rate of income tax.

Considerations

Income drawdown plans are a higher risk than a secured income arrangement such as a pension annuity, as the underlying assets of the fund are usually invested in the stock market. To ensure the pension fund does not run out of money, the member will require investment advice and regular reviews.

Some income drawdown products can be expensive in terms of charges, although they normally vary between 2% and 4% a year.

It’s also helpful if you have some experience of managing investments.

Please note we provide advice not a facilitation process, if you engage us for services we will assess your suitability and we may deem that a drawdown is not suitable for your needs, in which case we will not recommend this.

A PENSION IS A LONG TERM INVESTMENT, THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM TAXATION, ARE SUBJECT TO CHANGE.

HIGH INCOME WITHDRAWALS MAY NOT BE SUSTAINABLE.

TAKING WITHDRAWALS MAY ERODE THE CAPITAL VALUE OF THE FUND, ESPECIALLY IF INVESTMENT RETURNS ARE POOR AND A HIGH LEVEL OF INCOME IS BEING TAKEN. THIS COULD RESULT IN A LOWER INCOME WHEN THE ANNUITY IS EVENTUALLY PURCHASED.

ANNUITY RATES MAY BE AT A WORSE LEVEL WHEN ANNUITY PURCHASE TAKES PLACE.

Personal Pension Plans

A personal pension plan helps you save money for retirement and is available to any United Kingdom resident who is between the ages of 16 and 75 (Children under 16 cannot start a plan in their own right but a Legal Guardian can start one on their behalf). You, in conjunction with your adviser, choose the pension provider and make the arrangements for paying the contributions to the plan.

You can start a personal pension even if you have a workplace pension or if you’re self-employed and don’t have a workplace pension. You don’t have to be working to take out a Personal Pension Plan and you can also provide a Personal Pension Plan for your spouse/partner or your child/children.

When you contribute to a Personal Pension plan, your money is invested by the pension provider (usually an insurance company) to build up a fund/pension pot over a number of years.

Tax relief

If you’re a basic rate taxpayer, your pension provider will claim back Income Tax at the basic 20 per cent rate on your behalf on the contributions you make and add it to your pension pot. Higher rate taxpayers claim the additional rebate through their tax returns.

Contribution limits

The total amount (the ‘annual allowance’) you or your employer can contribute to a defined contribution personal pension scheme, or schemes, is limited to £40,000* per annum. If you contribute more than that you will pay a tax charge. The maximum you can contribute to your personal pension or pensions in your lifetime — the ‘lifetime allowance’ — is £1,030,000*.

Tax-free cash

Most schemes allow you to withdraw 25% of your fund tax-free from age 55 onwards. Subsequent withdrawals are subject to income tax.

The size of your pension pot will depend on:

  • the amount of money you paid into the plan
  • the performance of the plan’s investments
  • charges payable under the plan

Taking your pension

Although most personal pension schemes specify an age when you can start withdrawing benefits from your personal pension (usually between 60 and 65) you are allowed to do that from age 55 if you wish. You don’t have to stop work to draw benefits from your plan.

Death Benefits

If you die before the age of 75 and haven’t purchased an annuity, your beneficiaries can inherit the entire pension fund as a lump sum or draw an income from it completely free of tax. If you’re over 75 years of age when you die, there will be tax to pay on any withdrawals made by the recipient of your fund.

*Tax year 2018/2019

A PENSION IS A LONG TERM INVESTMENT, THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM TAXATION, ARE SUBJECT TO CHANGE.

Stakeholder Pension Schemes

A Stakeholder Pension (SP) is a type of Personal Pension Plan designed to provide an optional lump sum and income in retirement. In common with a Personal Pension Plan, Stakeholder Pensions are available to any United Kingdom resident under the age of 75.

You, in conjunction with your adviser, choose the pension provider and make the arrangements for paying the contributions to the plan.

You can start a SP even if you have a workplace pension or if you’re self-employed and don’t have a workplace pension. You don’t have to be working to take out a SP and you can also provide a SP for your spouse/partner or your child/children.

When you contribute to a SP, your money is invested by the pension provider (usually an insurance company) to build up a fund/pension pot over a number of years.

A Stakeholder Pension incorporates a set of minimum standards established by the government, which include:

  • A capped charging structure which is a maximum of 1.5% per year for the first 10 years and 1% per year thereafter
  • The minimum contribution is £20 per month
  • You can pay in lump sums whenever you want
  • You can stop and start payments as you wish
  • You can switch to another scheme at any time
  • You do not need to retire to draw your stakeholder pension benefits. You can take benefits from age 55
  • At retirement, the option exists to take a quarter of the fund as a tax-free amount

The key point about SPs, as with any other pension, is to start contributing as early as possible and keep making contributions for as long as possible. That way your pension pot has time to build up and the investment returns compound through reinvestment over many years. The result should be a significant sum of money to invest when you retire.

If you die before age 75 and you have not started to take benefits from your pension the funds will normally be passed to your spouse or other elected beneficiary free of inheritance tax. Other tax charges may apply depending on the circumstances.

It is possible to continue past age 75 without taking benefits. If you die after age 75 your pension pot can still be passed to a nominated beneficiary free of inheritance tax, however if paid as a lump sum, tax at the beneficiary’s marginal rate will apply (2017/18). If it is paid as an income to your spouse or dependant there will be no initial tax charge but any income paid would be subject to income tax.  Where an individual who is receiving the lump sum is a trustee or personal representative, it is subject to a lump-sum death benefits charge of 45%.

A PENSION IS A LONG TERM INVESTMENT, THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM TAXATION, ARE SUBJECT TO CHANGE.

State Pension

You can find all the relevant information by accessing the following links:

https://www.gov.uk/state-pension/overview

https://www.gov.uk/new-state-pension/what-youll-get

YOU ARE NOW DEPARTING FROM THE REGULATED SITE OF MCAULEY FINANCIAL LTD. NEITHER MCAULEY FINANCIAL LTD NOR TENETCONNECT LIMITED NETWORK CAN BE RESPONSIBLE FOR ANY CONTENT CREATED AND PUBLISHED SOLELY BY A THIRD PARTY OUTSIDE OUR REGULATED SITE.

The basic State Pension is paid by the government when you reach State Pension age. The amount you receive, the maximum is £164.35* per week, is based on the number of National Insurance (NI) contributions made during your working life — i.e. ‘Qualifying Years’. The State Pension increases automatically by at least 2.5% a year.

If you carry on working after claiming your State Pension, your earnings will not affect how much State Pension you get. But if you get an increase for a dependant, their earnings may affect how much increase you get for them.

The State Pension age varies

  • For men born before 6 December 1953, the current State Pension Age is 65
  • For women born before 6 April 1950, the current State Pension Age is 60
  • For women born on or after 6 April 1950 but before 6 December 1953, their State Pension Age is between 60 and 65

The State Pension Age will increase again to 66 between November 2018 and October 2020 which means that for men and women born on or after 6 December 1953 but before 6 October 1954, their State Pension Age is between 65 and 66.

Between April 2026 and April 2028 the State Pension Age will again increase to 67 and then again between April 2044 and April 2046 to 68.

Since it is intended that the State Pension Age will better reflect changes in life expectancy, it could well mean that the above timetables may be revised.

If you are a married woman and cannot get a full basic State Pension because you do not have enough qualifying years based on your own National Insurance (NI) contributions, you may be able to get a State Pension based on your husband’s NI contributions. You can only do this if he is already getting a basic State Pension and you are aged 60 or over.

If you are a widow, widower or surviving civil partner, you may be able to get a basic State Pension based on your late husband’s, wife’s or civil partner’s NI contributions.

If you are divorced, or your civil partnership has been dissolved and you cannot get a full basic State Pension based on the qualifying years from your own NI contributions, you may be able to get a basic State Pension based on your former husband’s, wife’s or civil partner’s NI contributions. They do not need to be getting their State Pension.

If you put off claiming your State Pension for at least five weeks when you reach State Pension age, you can earn extra State Pension. The weekly amount of your State Pension will be higher, but you will not get any State Pension for the weeks you put off claiming.

Additional State Pension

The government also provides an Additional State Pension which is paid on top of the basic State Pension. This used to be called the State Earnings-Related Pension Scheme (SERPS) but was changed to the State Second Pension in April 2002, the new scheme being more generous for low and moderate earners, certain carers and people with a long-term illness or disability. The State Second Pension is referred to as the Additional State Pension.

A SERPS pension, a State Second Pension and an Additional State Pension can be inherited by a widow, widower or surviving civil partner, the amount being dependent on the date of birth of the person who has died, subject to a maximum total amount when combined with a person’s own additional pension.

Contracting out

Since 6 April 2012, contracting out has only been possible if you contracted out through an occupational salary-related (defined-benefit) scheme, although this will also be reviewed in the future. If you were contracted out through a money-purchase (defined-contribution) occupational pension scheme or a personal or stakeholder pension then on 6 April 2012 you would have automatically been brought back into the additional State Pension.

* Tax year 2018 / 2019

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM TAXATION, ARE SUBJECT TO CHANGE.

SSAS

What is a SSAS?

SSAS — also known as a Small Self Administered Scheme (SSAS) — is a company pension scheme, the members of which are usually directors and key employees of the sponsoring employer.

Whilst subject to the same rules relating to contributions and benefits as a normal company pension scheme, SSAS’ schemes have considerably more flexibility and control over the investment policies and the scheme’s underlying assets.

Other considerations are that only one scheme is permitted per employer, normally the scheme should have less than 12 members and there can be limits on the amount of investment.

If you would like further details please contact us.

SSAS ARE REGULATED BY THE PENSIONS REGULATOR.

A PENSION IS A LONG TERM INVESTMENT, THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM TAXATION, ARE SUBJECT TO CHANGE.

SIPP

What is a SIPP?

A Self Invested Personal Pension (SIPP) is a Registered Pension scheme under the terms of the Finance Act 2004.

SIPPs are designed for investors who want maximum control over their pension without being dependent on any one fund manager or insurance company. As such, a SIPP requires active management and a degree of investment expertise. Furthermore, the charges (levied by the SIPP manager) may be higher than for a personal pension or stakeholder plan.

Unlike a standard personal pension, a SIPP holder has a much wider choice of assets to invest in, each of which can be selected to meet the individual’s personal circumstances and requirements.

Investments which can be held in a SIPP include:

  • UK and overseas equities
  • Unlisted shares
  • OEICs and unit trusts
  • Investment trusts
  • Property and land (but not most residential property) insurance bonds

It’s possible to use a SIPP to raise a mortgage to fund the purchase of commercial property, where the rental income paid into the SIPP either completely, or partially covers, the mortgage repayments and/or the property’s running costs.

Please note SIPPs are not suitable for everyone investing into a pension, we will conduct an assessment of your situation to determine suitability.

A PENSION IS A LONG TERM INVESTMENT, THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM TAXATION, ARE SUBJECT TO CHANGE.

Executive Pension Plan

Director / Executive Pension Plan (EPP)

Executive Pension Plans (EPP) are tax-efficient savings plans set up by the company for key employees. The employer (and sometimes the employee) pays into the plan, to build a tax-efficient fund, which is used at retirement to provide tax free cash and a pension income. In effect, EPPs are money purchase occupational pension schemes and operate for the most part like any other pension scheme.

EPPs are normally established by company directors or other valued employees for their own benefit, though only the favoured can expect to be given the levels of investment that these schemes offer.

From an employer’s perspective, an EPP can form the core of a benefits package to attract, motivate and reward key executives, plus the financial benefits of contributions being allowable as a business expense and able to be set against taxable profits. Furthermore, there is no NIC liability and so extra pension contributions into an EPP can be made instead of salary increases.

The pension fund is set up under trust, with the trustees responsible for the trust’s day-to-day administration, such as ensuring contributions are paid regularly and benefits are paid out promptly.

For the individual, there is flexibility of retirement, allowing the person to retire early and hand over to others (although benefits can only be taken from age of 55) or to work well past the company’s normal retirement date.

EXECUTIVE PENSION PLANS ARE REGULATED BY THE PENSIONS REGULATOR

A PENSION IS A LONG TERM INVESTMENT, THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM TAXATION, ARE SUBJECT TO CHANGE.

Police Pension Schemes

McAuley Financial Limited can provide unbiased advice to any member, new, serving or retired.  Perhaps one of the first questions a new Officer will ask themselves is, ‘Should I join the Police Pension Scheme’?  This has come under further focus as a result of the Winsor Review & Hutton Report.

We do recommend that ALL Officers join and indeed maintain membership of the scheme until such times as the maximum benefits to which they are entitled have been accrued!

If any Officer wishes to clarify this position, our Independent Financial Advisers will me happy to offer guidance.